Dalley v. Mitchell Rubenstein & Associates, P.C. ( 2016 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
NATASHA DALLEY, )
)
Plaintiff, )
)
v. ) No. 15–cv-0875 (KBJ)
)
MITCHELL RUBENSTEIN & )
ASSOCIATES, P.C.
)
Defendant. )
)
MEMORANDUM OPINION
On June 9, 2014, Defendant Mitchell Rubenstein & Associates, P.C. (“MRA”)
filed a lawsuit against Plaintiff Natasha Dalley in the Superior Court of the District of
Columbia, seeking to recover the amount that Dalley owed on a defaulted 2002 student
loan. MRA’s lawsuit was stayed on November 6, 2014, after Dalley filed for Chapter 7
bankruptcy. Dalley then turned the tables on MRA: she brought the instant lawsuit,
arguing that MRA’s prosecution of the aforementioned civil action violated the Fair
Debt Collecting Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p, and the District
of Columbia Debt Collection Law (“DCDCL”), D.C. Code § 28-3814, and also that it
amounted to common law abuse of process. (See generally 2d Am. Compl., ECF No.
7.)
Before this Court at present is MRA’s motion to dismiss Dalley’s second
amended complaint under Federal Rule of Civil Procedure 12(b)(1). (See Def.’s Mot. to
Dismiss 2d Am. Compl. (“Def.’s Mot.”), ECF No. 11.) MRA alleges, among other
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things, that Dalley lacks standing to sue because the right to bring this lawsuit to
recover damages for alleged violations of federal and state collections practice laws was
transferred to the trustee of the bankruptcy estate when Dalley voluntarily petitioned for
Chapter 7 bankruptcy, and this property right has not been abandoned by that trustee to
date. (See id. at 17.) 1 In response, Dalley contends that she has standing to bring her
FDCPA claims notwithstanding the bankruptcy, because her claims were exempted from
her bankruptcy estate under the “wild card” exemption in the bankruptcy code and also
because her FDCPA claims qualify as “payment[s] . . . on account of personal bodily
injury[.]” (See Pl.’s Opp’n to Def.’s Mot. (“Pl.’s Opp’n”), ECF No. 12, at 5–6.)
For the reasons explained below, this Court concludes that Dalley lacks standing
to file the instant action in federal court, and as a result, MRA’s motion to dismiss
under Rule 12(b)(1) for lack of standing will be GRANTED. A separate order
consistent with this Memorandum Opinion will follow.
I. BACKGROUND
A. Facts
On behalf of the National Collegiate Student Loan Trust (“NCSLT”), MRA filed
a lawsuit against Dalley in Superior Court on June 9, 2014. (See 2d Am. Compl. ¶¶ 9,
11.) MRA’s Superior Court complaint claimed that Dalley had defaulted on a private
student loan in 2002, and it sought to recover the principal and accrued interest with
respect to that loan. (See id. ¶ 9; Aff. of Natasha Dalley (“Dalley Aff.”), ECF No. 13,
¶ 6.) Dalley alleges that, because of MRA’s lawsuit, she was forced to “file[] for
1
Page numbers herein refer to those that the Court’s electronic case filing system automatically
assigns.
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Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the District
of Columbia.” (See 2d Am. Compl. ¶ 14.) Dalley’s voluntary bankruptcy petition,
which was filed on October 18, 2014, did not list any outstanding lawsuits or other
causes of action in the Schedule B itemization of assets or in the Schedule C claims of
exempt property. (See Voluntary Bankr. Pet., Ex. B to Pl.’s Opp’n, ECF No. 12-2, at 2–
4, 10–15.)
On November 6, 2014, “the [Superior] court stayed NCSLT’s lawsuit” in light of
Dalley’s Chapter 7 voluntary petition (see Bankr. Mot. for Sanctions, Ex. E to Pl.’s
Opp’n, ECF No. 12-5, at 2–3), which halted the loan-recovery proceedings by operation
of law. See In re McGuirl, 349 B.R. 759, 760 (D.D.C. 2006) (“The filing of a petition
for bankruptcy relief triggers an automatic stay that prohibits unilateral actions against
the debtor or property of the debtor’s estate.” (citing 11 U.S.C. § 362)). Then, on
January 27, 2015, the bankruptcy court discharged Dalley’s debts in the context of the
Chapter 7 proceedings, thereby closing her bankruptcy case. (See Bankr. Ct. Discharge
of Debtor Order, Ex. B to Def.’s Mot., ECF No. 11-4, at 1.)
B. Procedural History
Approximately five months later, on June 9, 2015, Dalley filed the instant
lawsuit against MRA. Dalley’s second amended complaint alleges that MRA’s debt-
collection lawsuit was time-barred because it was filed “three days after the three-year
statute of limitations [had] expired” (2d Am. Compl. ¶ 11), and that NCSLT “never had
the legal capacity” to sue Dalley—or to authorize MRA to sue Dalley—to recover the
loan amount. (Id. ¶ 22.) Furthermore, according to Dalley, the filing of this
purportedly untimely and unauthorized civil action was tantamount to an unlawful debt
collection practice. Accordingly, Dalley alleges that MRA intentionally, willfully, and
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maliciously violated several subsections of the FDCPA (Count One) and the DCDCL
(Count Two), and that the filing of MRA’s lawsuit also amounted to abuse of process
(Count Three). (See id. ¶¶ 25–47.)
On July 20, 2015, MRA filed a motion to dismiss Dalley’s second amended
complaint for lack of jurisdiction under Rule 12(b)(1), alleging that Dalley does not
have standing to sue because, “even though this pre-petition claim was not specifically
listed on Dalley’s bankruptcy schedules,” it nonetheless and necessarily became the
property of the bankruptcy estate when she petitioned for Chapter 7 bankruptcy, and
having not abandoned that claim, the bankruptcy trustee remains the only one with
standing to pursue it. (Def.’s Mot. at 17.) In addition, MRA’s motion to dismiss argues
that the doctrine of judicial estoppel bars Dalley from bringing this lawsuit because she
excluded the cause of action from her list of assets in the bankruptcy proceeding in bad
faith, and the intentional omission is inconsistent with the position she has taken before
this Court. (See id. at 17–21.) See also Frese v. Empire Fin. Servs., 725 F. Supp. 2d
130, 140 (D.D.C. 2010) (explaining that “judicial estoppel is appropriate when a debtor
fails to identify a claim in a bankruptcy proceeding” thereby taking the position that she
holds no actionable claim, “and then proceeds to assert that claim in a separate judicial
action” in direct contravention to her bankruptcy position). Dalley has responded to
MRA’s motion to dismiss—focusing solely on the FDCPA count, she asserts that she
has standing to sue because her “FDCPA claims” are “personal bodily injury claims”
that are “exempted from estate property under [section] 522(d)(11)” of the bankruptcy
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code and under section 522(d)(5)’s “wild card” exemption. (Pl.’s Opp’n at 5–6.). 2
MRA’s motion to dismiss for lack of standing is now ripe for this Court’s review.
II. LEGAL STANDARD
A motion to dismiss for lack of standing alleges a defect in the court’s subject
matter jurisdiction and is properly addressed under Rule 12(b)(1). See Fed. R. Civ. P.
12(b)(1); Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987). To defeat a motion to
dismiss brought under Rule 12(b)(1), a plaintiff bears the burden of “set[ting] forth
allegations sufficient to establish the court’s jurisdiction over the subject matter of the
claims presented.” Evans v. First Mount Vernon, ILA, 786 F. Supp. 2d 347, 351
(D.D.C. 2011). In deciding such a motion, the court “must accept as true all of the
factual allegations contained in the complaint and draw all reasonable inferences in
favor of the plaintiff”; however, it need not “accept inferences unsupported by the facts
alleged or legal conclusions that are cast as factual allegations.” Id. (internal quotation
marks and citations omitted). Furthermore, “[i]n 12(b)(1) proceedings, it has been long
accepted that the judiciary may make appropriate inquiry beyond the pleadings to
satisfy itself on authority to entertain the case.” Haase, 835 F.2d at 906 (internal
quotation marks and citation omitted).
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As noted, Dalley’s response to MRA’s standing argument addresses whether she can bring an FDCPA
claim notwithstanding the bankruptcy, and does not purport to mention the issue of standing in regard
to the claims she has alleged under the DCDCL and common law. It is not clear whether Dalley intends
for her standing arguments to relate to all three counts of her complaint, and her reasons for parsing the
claims in this fashion when responding to defendant’s lack-of-standing contention are not immediately
apparent to this Court. Nevertheless, the Court treats Dalley’s silence with respect to MRA’s assertion
that she lacks standing to bring DCDCL and abuse of process claims as a concession on Dalley’s part
that she has no standing to pursue those claims. See Rosenblatt v. Fenty, 734 F. Supp. 2d 21, 22
(D.D.C. 2010) (“[A]n argument in a dispositive motion that the opponent fails to address in an
opposition may be deemed conceded.”). For that reason, this Memorandum Opinion reaches and
resolves the only contested issue related to standing: whether Dalley lacks standing to pursue the
claims raised in the complaint’s FDCPA count.
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III. ANALYSIS
MRA argues that the FDCPA claims that Dalley brings in Count One of the
instant lawsuit became part of the bankruptcy estate when Dalley filed for Chapter 7
bankruptcy, despite the fact that Dalley omitted those claims from the list of assets in
the bankruptcy schedules, and that the trustee has not abandoned those claims such that
Dalley has standing to pursue them. (See Def.’s Mot. at 9–13, 17.) Thus, according to
MRA, the bankruptcy trustee is the only party with standing to bring the instant lawsuit.
(See id. at 13, 17.) For the reasons explained below, and assuming for the purpose of
this analysis that Dalley has forfeited any objection to MRA’s standing argument with
respect to the DCDCL and abuse of process claims (see supra note 2), this Court agrees
with MRA.
A. Dalley’s Cause Of Action Is Part Of Her Bankruptcy Estate
It is well established that, upon the filing of a Chapter 7 bankruptcy petition, “all
legal or equitable interests, including causes of action on behalf of the debtor, are
transferred from the debtor to the bankruptcy estate.” Marshall v. Honeywell Tech.
Solutions, Inc., 675 F. Supp. 2d 22, 24 (D.D.C. 2009) (citing 11 U.S.C. § 541(a)(1));
see also Robinson v. District of Columbia, 10 F. Supp. 3d 181, 187 (D.D.C. 2014)
(explaining that “[t]he debtor need not know all the facts or even the legal basis for the
cause of action; rather, if the debtor has enough information . . . to suggest that it may
have a possible cause of action, then that is a known cause of action such that it must be
disclosed” in the bankruptcy schedules and considered part of the bankruptcy
proceeding (emphasis and alterations in original) (internal quotation marks and citation
omitted)). Furthermore, once a pre-petition cause of action becomes part of a
bankruptcy estate, the debtor’s legal rights and interests in that legal action—including
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the standing to pursue it—transfer to the bankruptcy trustee, who is acting on behalf of
the estate. See Moses v. Howard Univ. Hosp., 606 F.3d 789, 795 (D.C. Cir. 2010); see
also In re Bailey, 306 B.R. 391, 392 (Bankr. D.D.C. 2004) (“In a chapter 7 bankruptcy
case, any unliquidated lawsuits initiated by a debtor prepetition (or that could have been
initiated by the debtor prepetition) become part of the bankruptcy estate subject to the
sole direction and control of the trustee, unless exempted or abandoned or otherwise
revested in the debtor.”).
Dalley’s claim against MRA for violations of the FDCPA accrued before she
filed the petition for bankruptcy on October 18, 2014, because MRA’s debt-recovery
action preceded Dalley’s bankruptcy filing, and “[t]he FDCPA protects (1) consumers
(2) who have been subjected to abusive, deceptive or unfair debt collection practices (3)
by a debt collector (4) in an attempt to collect a debt.” Muldrow v. EMC Mortg. Corp.,
657 F. Supp. 2d 171, 174–75 (D.D.C. 2009). Although Dalley attests in her affidavit
that she did not “know” that she had a legal claim against MRA until after she filed for
bankruptcy (see Dalley Aff. ¶ 11), the facts alleged in the complaint, along with the
accompanying documents in the record, demonstrate that Dalley had more than enough
information when she petitioned for bankruptcy to suggest a possible FDCPA claim
against MRA based on the underlying litigation in Superior Court.
Specifically, Dalley was aware that she was a “natural person obligated or
allegedly obligated to pay any debt[,]” 15 U.S.C. § 1692a(3), and thus, qualified as a
consumer under the FDCPA. In addition, Dalley knew that MRA had attempted to
collect the loan debt by filing a suit against her in Superior Court on June 9, 2014. (See
Super. Ct. Compl., Civ. No. XX-XXXXXXX, Ex. A to Pl.’s Opp’n, ECF. No. 12-1, at 2.)
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She also knew, or should have known, that MRA’s lawsuit could be characterized as
“abusive, deceptive or unfair” because (1) NCSLT purportedly did not have the capacity
to sue her or to authorize MRA to sue her (see Dalley’s Answer to Super. Ct. Compl.,
Ex. A to Def.’s Reply, ECF No. 14-1), and (2) she allegedly had made the last payment
on the loan in 2008, over three years before MRA’s lawsuit, which was apparently
beyond the applicable statute of limitations (see Dalley Aff. ¶ 7). Thus, when Dalley
petitioned for bankruptcy four months after MRA filed suit, the facts known to her were
sufficient to give rise to an obligation to disclose a possible FDCPA claim against
MRA, even if she was not specifically aware of the legal basis for such action.
Consequently, MRA is correct that the pre-petition FDCPA claim was a known asset of
Dalley’s that became part of the bankruptcy estate upon her filing of a voluntary
petition under Chapter 7. (See Def.’s Mot at 17; Def.’s Reply at 5–6.)
Undaunted, Dalley asserts that her FDCPA claims were not part of her
bankruptcy estate because they were expressly exempted either under 11 U.S.C.
§ 522(d)(11)(D)—a statutory provision that allows a debtor to schedule some payments
as exempt “on account of personal bodily injury, not including pain and suffering or
compensation for actual pecuniary loss”—or under the “wild card” exemption that
applies to certain assets, including legal claims, as set forth in § 522(d)(5). (See Pl.’s
Opp’n at 5–6 (citing section 522(d)(5), which exempts a debtor’s “aggregate interest in
any property” up to certain amounts that are automatically and periodically adjusted
over time).) But Dalley’s second amended complaint does not allege that Dalley
suffered any personal bodily injury as a result of MRA’s debt-collection efforts;
furthermore, in this context, the wildcard exemption relates only to a debtor’s ability to
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recover some, or all, of the proceeds of a legal claim if the trustee successfully litigates
that claim, and it does not vest in the debtor any legal right to pursue the claim herself.
See In re Fetner, 218 B.R. 262, 264 (Bankr. D.D.C. 1997) (explaining that the wild card
exemption for legal claims “is simply an interest in any potential recovery from the
lawsuit, . . . not an absolute right to retain the lawsuit” and that “[i]t is the trustee who
has the capacity to prosecute a lawsuit on behalf of the estate” (internal quotation marks
and citation omitted)). What is more, even if Dalley’s exemption arguments were
meritorious, it is clear that claiming exemption from the bankruptcy estate now, long
after the bankruptcy proceedings have concluded, cannot give rise to standing to sue
when the debtor failed to list the cause of action in her bankruptcy schedules prior to
commencing the lawsuit. See Yelverton v. District of Columbia, 529 B.R. 1, 4 (D.D.C.
2014) (explaining that “claiming an exemption” for a cause of action after filing suit
does not “retroactively provide a debtor with standing”).
Thus, this Court easily concludes that, because Dalley failed to list the FDCPA
claims that she relates in Count One of her second amended complaint in the context of
the bankruptcy proceeding, and also because the alleged exemptions do not appear to
permit Dalley to file the FDCPA claims that she seeks to bring here in any event,
Dalley’s FDCPA claims became the property of her bankruptcy estate upon her Chapter
7 filing, which means that Dalley does not have standing to pursue those claims in this
Court, unless the trustee abandoned them.
B. Nothing In The Complaint Or The Record Establishes That The
Bankruptcy Trustee Abandoned Dalley’s FDCPA Claims
Under well-settled law, title to claims that have been transferred to the
bankruptcy estate to be handled by the trustee remains in the estate unless the cause of
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action is abandoned back to the debtor pursuant to § 554 of the Bankruptcy Code. See
11 U.S.C. § 554(d). “Abandonment” is a term of art, and the limited circumstances
under which abandonment can be deemed to have occurred are delineated in § 554 of
the Bankruptcy Code, which states, in pertinent part:
(a) After notice and a hearing, the trustee may abandon any property of
the estate that is burdensome to the estate or that is of
inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a hearing, the
court may order the trustee to abandon any property of the estate that
is burdensome to the estate or that is of inconsequential value and
benefit to the estate.
(c) Unless the court orders otherwise, any property scheduled under
section 521(a)(1) of this title not otherwise administered at the time
of the closing of a case is abandoned to the debtor and administered
for purposes of section 350 of this title.
11 U.S.C. § 554. This statute plainly establishes that there are three instances in which
a cause of action that is part of the bankruptcy estate may be considered “abandoned”
by the trustee and thus may be pursued by the debtor: (1) when the trustee, upon his or
her own volition, provides the interested parties with formal notice of the abandonment
and an opportunity to be heard; (2) when the bankruptcy court, upon request of an
interested party, orders the trustee to abandon the cause of action after formal notice
and a hearing; and (3) when the cause of action has been disclosed and scheduled as an
asset by the debtor but not administered by the trustee before closing of the bankruptcy
case—“i.e., [when the trustee] does nothing to pursue the action, it will then be deemed
abandoned by operation of law[,]” Wissman v. Pittsburgh Nat’l Bank, 942 F.2d 867, 873
(4th Cir. 1991).
As for the relevant timing, “[i]t may be the case that abandonment of litigation
claims retroactively returns the claims to the debtor as of the date [s]he files for
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bankruptcy[,]” Yelverton, 529 B.R. at 3 (emphasis omitted), and thus, a plaintiff such as
Dalley might arguably “retroactively obtain[] standing” to sue based on a trustee’s
subsequent abandonment of a cause of action, id. But “[w]here nothing in the record
shows that a trustee [ever] abandoned a debtor’s cause of action, dismissing a complaint
brought by the debtor for lack of standing is proper.” Marshall, 675 F. Supp. 2d at 26;
see also Parker v. Wendy’s Int’l, Inc., 365 F.3d 1268, 1272 (11th Cir. 2004) (stating
that lack of standing, and not judicial estoppel, is the more appropriate defense where a
debtor brings a claim that was not abandoned by the trustee).
So it is here. Dalley’s second amended complaint does not specifically allege
that the FDCPA cause of action was abandoned by any of the three established methods,
nor does the record reveal any facts that demonstrate abandonment occurred with
respect to the FDCPA claims at issue here. That is, there are no alleged facts that, if
taken as true, demonstrate that the bankruptcy trustee voluntarily undertook to provide
notice and to have a hearing to accomplish abandonment of Dalley’s FDCPA claims per
subsection (a), see 11 U.S.C. § 554(a), and there is neither allegation nor evidence that
any interested party requested a court order of abandonment with respect to Dalley’s
FDCPA claim pursuant to subsection (b) after notice and a hearing, see id. § 554(b).
Furthermore, it is clear that Dalley cannot rely upon subsection (c)—which provides for
abandonment by operation of law upon the closing of a bankruptcy case—because it is
undisputed that she failed to schedule her FDCPA claim as an asset before the closing
of her case in January of 2015. See id. § 554(c). There is no question that “assets that
[a bankruptcy petitioner] had[] as of the date of filing [bankruptcy], but that she did not
add to her schedule, were not abandoned to her when the case was closed [i.e., they
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remained part of the bankruptcy estate], regardless of whether the failure to formally
schedule the cause of action was innocent.” Marshall, 675 F. Supp. 2d at 25 (emphasis
added); see also Locapo v. Colsia, 609 F. Supp. 2d 156, 159 (D.N.H. 2009) (“[O]nce a
bankruptcy case closes through administration of the estate, the debtor loses his rights
in a cause of action he had at the time he sought bankruptcy protection but nevertheless
failed to list on his schedule.”). Thus, the mere fact that Dalley’s bankruptcy case
closed without administration of her unscheduled FDCPA claim does not mean that her
FDCPA claims were abandoned by the trustee such that she is free to bring them in
Court now. 3
The thrust of all this is quite conveniently summarized in the express terms of
section 544 of Title 11 of the United States Code, which states that “[u]nless the court
orders otherwise, property of the estate that is not abandoned under this section and that
is not administered in the case remains property of the estate.” 11 U.S.C. § 544(d).
This Court has already found that Dalley’s FDCPA claims became the property of her
bankruptcy estate when she filed for Chapter 7 bankruptcy, see supra Part III.A, and
even though those claims remained unadministered at the time Dalley’s bankruptcy case
closed, there is nothing in Dalley’s complaint or in the record that establishes that the
bankruptcy trustee ever abandoned those claims. Consequently, there is no basis upon
3
If Dalley’s assertion that she amended the Schedule C bankruptcy form to include the FDCPA claim at
some point after the filing of the instant lawsuit (see Pl.’s Opp’n at 7) was intended to establish her
right to sue, this Court finds that it does not do so. While it is clear beyond cavil that causes of action
that a trustee has actually abandons generally revert to the debtor, see Moses, 606 F.3d at 795, the mere
fact that a debtor lists a claim as exempt in her bankruptcy schedules at some point after filing a
lawsuit regarding the claim does not result in actual abandonment. See Yelverton, 529 B.R. at 3
(explaining that filing amended schedules to list the cause of action as exempt after bringing suit and
after the bankruptcy case closed, does not suffice; rather, the debtor must follow section 554’s
requirements to “compel a trustee to abandon”).
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which this Court can conclude that Dalley has standing to bring the instant FDCPA
action.
IV. CONCLUSION
When a debtor files for Chapter 7 bankruptcy, she loses the legal standing to
bring a lawsuit regarding a pre-petition cause of action that she did not disclose in her
bankruptcy filings, unless or until the trustee abandons that cause of action. Dalley’s
undisclosed FDCPA claims arose prior to her Chapter 7 bankruptcy declaration and
nothing in the complaint or the record establishes that the bankruptcy trustee abandoned
those claims such that Dalley has standing to pursue them in this Court. Therefore, this
Court lacks subject-matter jurisdiction over Dalley’s complaint, and as set forth in the
accompanying order, MRA’s motion to dismiss will be GRANTED.
DATE: March 18, 2016 Ketanji Brown Jackson
KETANJI BROWN JACKSON
United States District Judge
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